The housing market slump is getting worse
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A townhouse under construction in the Licton Springs neighborhood of Seattle last month. Photo: M. Scott Brauer/Bloomberg via Getty Images
A longtime slump in the new housing sector is getting worse, according to new indicators.
Why it matters: The broader economy held up during a "rolling recession" that hit the housing industry in recent years. That might not be the case this time if other sectors slow concurrently.
Catch up quick: Builders broke ground on home construction in May at the slowest pace in five years.
- The issuance of building permits, an indicator of the appetite to build homes, also hit a five-year low.
- Sentiment among homebuilders dropped to the lowest level since 2022 in June.
- Lennar, one of the nation's biggest homebuilders, reported weaker-than-expected quarterly earnings, citing a soft housing market.
State of play: Now the sector faces new Trump-era factors, including tariffs and deportations, that are holding back construction and limiting supply.
- Plus, in certain parts of the country, there is too much inventory compared to demand.
Driving the news: Housing starts fell almost 10% last month to an annualized pace of 1.3 million, well below the rate that economists expected, the Commerce Department said Wednesday morning.
- Building permits also came in worse than expected, particularly for single-family homes. They dropped to an annualized rate of 898,000, nearly 3% below April.
What they're saying: The National Association of Home Builders said sentiment among builders has only been lower than its June level twice since 2012.
- "Buyers are increasingly moving to the sidelines due to elevated mortgage rates and tariff and economic uncertainty," said Buddy Hughes, a North Carolina-based developer who chairs the NAHB, said in a statement Tuesday.
The big picture: Softer demand is being met by higher building costs, including for labor and materials.
- The industry is heavily reliant on immigrant workers, who are being targeted for deportations by the Trump administration.
- Meanwhile, tariffs on steel and aluminum have doubled to 50%, except for U.K. imports of the materials. The Trump administration is considering higher tariffs on wood materials, including lumber.
"New construction has slowed as builders have pulled back on production," Lennar co-CEO Stuart Miller said on an earnings call Tuesday.
- Miller said "labor and material costs — lumber is a particular headache — are generally increasing."
